Ahold: Markets conditions to remain difficult

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Published: Nov 15, 2012 1:58 a.m. ET

Last Updated: Nov 15, 2012 2:05 a.m. ET

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By Robert van den Oever

AMSTERDAM--Dutch retailer Royal Ahold NV AH.AE said Thursday it sees no relief from an intensely competitive U.S. market, as it continues to sacrifice margin in an attempt to attract cost-conscious consumers.

The company, which operates predominantly in the U.S., as well as in its home market of the Netherlands, said revenue rose 11% to 7.60 billion euros ($9.67 billion) as it benefited from increased sales volumes, but operating margin fell to 4.1% from 4.4% a year earlier as the retailer continued to cut prices. This led to a 3.7% decline in operating profit to EUR289 million, while net profit fell 46% to EUR139 million. Net profit was hit by a EUR90 million tax charge related to Ahold's Scandinavian joint venture ICA, of which it owns 60%.

Ahold Chief Executive Dick Boer is gloomy about the future economic environment. "We remain cautious in our outlook and expect market conditions to continue to be difficult. We will closely monitor the potential impact of rising food commodity costs, particularly in the United States," he said. About the third quarter, he said: "Market conditions remained challenging, with consumers cautious in their spending and with ongoing high levels of promotional activity in both the United States and Europe."

In the U.S., which accounts for 60% of Ahold's group revenue, the company had to cope with tough competition and cautious consumers. But price promotions worked and Ahold's U.S. revenue rose 1.9% to $5.9 billion.

By contrast, Ahold's Belgian competitor Delhaize Group DELB.BT last week showed it faces huge problems in the U.S. as revenue and profit fell despite a revamp of the retailer's Food Lion chain in an attempt to draw in cash-strapped customers.

Ahold announced a change in U.S. leadership. Board member James McCann will become chief operating officer for Ahold USA as of Feb. 1, 2013. Mr. McCann will continue as board member. He takes over U.S. duties from Carl Schlicker, who will retire.

In the Netherlands, Ahold's flagship chain, Albert Heijn, posted 8.1% revenue growth in the third quarter, compared with revenue growth of 5.3% in the second quarter, when the stores were hit by the Dutch soccer team's early exit from the European championship.

Albert Heijn was forced to write off stock in the second quarter after it produced a lot of soccer-related merchandise in the Dutch national color of orange, which lost its shine when the national team failed to progress in the tournament.

In the third quarter, Dutch operating margin was 5.6% compared with 5.4% in the second quarter of 2012 and 6.4% in third quarter 2011.

But like in the U.S., it's still necessary to cut prices to attract customers, meaning margins declined compared with a year earlier.

Revenue in the Netherlands was boosted by the consolidation of online retailer Bol.com, which Ahold acquired earlier this year. The third quarter was the first quarter in which Ahold counted the Bol.com numbers in full. Also, the acquisition of 82 stores in the Netherlands from competitor Jumbo helped boost revenue.

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By Robert van den Oever

AMSTERDAM--Dutch retailer Royal Ahold NV (AH.AE) said Thursday it sees no relief from an intensely competitive U.S. market, as it continues to sacrifice margin in an attempt to attract cost-conscious consumers.

The company, which operates predominantly in the U.S., as well as in its home market of the Netherlands, said net profit fell 46% to 139 million euros ($176.9 million) from EUR257 million, hit by a EUR90 million tax charge related to Ahold's Scandinavian joint venture ICA, of which it owns 60%.

Revenue rose 11% to EUR7.60 billion from EUR6.86 billion as it benefited from increased sales volumes, but profit fell 3.7% to EUR289 million as the retailer continued to cut prices. Operating margin fell to 4.1% from 4.4% a year earlier.

In the U.S., which accounts for 60% of Ahold's group revenue, the company had to cope with tough competition and cautious consumers but price promotions worked and Ahold's U.S. revenue rose 1.9% to $5.89 billion.

Ahold announced a change in U.S. leadership, with board member James McCann becoming chief operating officer of Ahold USA from Feb. 1, 2013, taking over from Carl Schlicker who will retire.

In the Netherlands, Ahold's flagship chain Albert Heijn posted 8.1% revenue growth to EUR2.53 billion from EUR2.35 billion, boosted by the consolidation of online retailer Bol.com which Ahold acquired earlier this year and the acquisition of 82 stores from competitor Jumbo.

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